Admiral Group Limited
Directors’ report and financial
statements
Registered number 03849958
31 December 2002
Admiral Group Limited
Directors’ report and financial statements
31 December 2002
Contents
Directors and advisers
Chief executive's statement
Directors’ report
Corporate governance report
Statement of directors’ responsibilities
Independent auditor's report to the members of Admiral Group Limited
Consolidated profit and loss account: technical account – general business
Consolidated profit and loss account: non-technical account
Consolidated balance sheet
Parent Company balance sheet
Group cash flow statement
Notes
1
2
9
11
13
14
15
16
17
19
20
21
Directors and advisers
Chairman
A D Lyons *
Chief Executive
H A Engelhardt
Directors
M Aldag * (appointed 13 March 2003)
O J Clarke *
D K M James * (appointed 19 December 2002)
A C Probert
D G Stevens
W P Thompson *
* non-executive
Secretary
S D Clarke
Registered office
Capital Tower
Greyfriars Road
Cardiff CF10 3AZ
Auditors
KPMG Audit Plc
Marlborough House
Fitzalan Court
Fitzalan Road
Cardiff CF24 0TE
Actuaries
Ernst & Young
Rolls House
7 Rolls Buildings
Fetter Lane
London EC4A 1NH
Bankers
Lloyds TSB
113-116 Leadenhall Street
London EC3 4AX
Admiral Group Limited
Directors’ report and financial statements
31 December 2002
1
Admiral Group Limited
Directors’ report and financial statements
31 December 2002
Chief Executive’s statement
Now that was a year!
Let me try and list what we accomplished during 2002:
(cid:1) Added a new shareholder, Munich Re, which bought new shares in AGL as well as some of Barclays Private
Equity and Ridgewood (XL Capital) shares and now owns 18.6% of the Group;
(cid:1) Refinanced our debt, which paid off all the debt created with the MBO at the end of 1999;
(cid:1) Applied for and received a license to trade from the FSC in Gibraltar;
(cid:1) Gave more than 2.5m quotes and made over 40% of our new business sales via the internet;
(cid:1) Had total turnover of £378 million*
(cid:1) Made an all-time record profit of £55m**, an increase of 45% from last year.
(cid:1) Celebrated the completion of (our first) 10 years of trading!
(cid:1) Named the 7th Best Workplace in the UK and a member of the Top 100 Workplaces in the EU as judged by the
Financial Times.
What We Do:
For those of you looking through our accounts for the first time, Admiral’s primary business is to sell car insurance
direct to the public in the UK. We operate through a number of targeted brands: Admiral (younger drivers, London),
Bell Direct (credit card payers), Diamond (women) and Elephant.co.uk (internet users).
2002 was our 10th year of trading. The first 7 were under the auspices of a Lloyd’s of London Managing Agent.
However, toward the end of 1999, Management teamed up with Barclays Private Equity to buy the business. The
result of this transaction was the creation of Admiral Group Ltd. (AGL) as the holding Company. This is the third
set of accounts for AGL.
When we did the buyout we put in place long term co-insurance agreements with Munich Re, the world’s largest
reinsurer and another, highly rated, reinsurer for the majority of our premium. Since that original agreement we have
re-negotiated the agreement with Munich Re for a longer duration.
Key Performance Measures:
Before ceding this premium to these reinsurers our total written premium for 2002 was £333m. This makes our total
turnover for the year £378m*, up from £323m in 2001 (+17%). The direct brands customer count rose to 679,000
from 587,000 (+15.7%). All our growth has been organic. The total customer count, including Gladiator
Commercial, reached 705,000, up from 608,500 (+15.8%).
2
Admiral Group Limited
Directors’ report and financial statements
31 December 2002
Chief Executive’s statement (continued)
Total motor premiums
m
£
'
350
300
250
200
150
100
50
0
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
In 2002 we ceded 80% of our premium to the two reinsurers. Our reinsurance arrangements have been slightly
restructured going forward and AGL will hold 25% of the premium and risk for 2003 and 2004. AGL’s net premium
income was £69m in 2002.
Here are a few more key numbers:
(cid:1) Claims ratio 64.6% an improvement from 75.9%
(cid:1) Expense ratio 9.5% an improvement from 15.4%
(cid:1) Combined ratio 74.1% an improvement from 91.4%
(cid:1)
Income from products and services we do not underwrite up to £40m from £35m.
The claims ratio reduction from 2001 is largely down to reserve releases from 2000 and 2001, accounting for 10
percentage points, virtually all of the difference. The loss ratio without releases still represents good value at 74%.
We believe that this loss ratio will prove to be better than that of the market average for 2002.
The incredible 9.5% expense ratio figure is unlikely to be repeated next year, since it includes a non-recurring
expense commission, which flatters the ratio by almost 8.5 percentage points. Our earned expense ratio, without this
commission but also excluding non-recurring Lloyd’s charges, was still an excellent 15.4% ***. This compares
favourably with 18.2% on the same basis last year. Therefore, even without the benefit of the expense commission,
our combined ratio stood at 80%. If you go a step further and back-out the reserve releases (but please don’t forget
to go back and amend our previous returns!) our combined ratio is still a very healthy 90%.
3
Admiral Group Limited
Directors’ report and financial statements
31 December 2002
Claims ratio
Expense ratio
Chief Executive’s statement (continued)
COMBINED RATIO
140.0%
120.0%
100.0%
80.0%
60.0%
40.0%
20.0%
0.0%
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Other income moved forward due to the increased customer count as well as greater penetration of sales of ancillary
products offset by some investment in future revenue streams. If you included the profits from Other Income in the
combined ratio as a measure of the entire business, then the combined ratio would drop from 74.1% to 55.5%!
The UK Car Insurance Market Cycle: What Next?
Unfortunately, the cyclical nature of the UK car insurance market means that these lofty levels of profitability are not
sustainable. The market is turning as I write this very report. The mathematics are not complicated: claims costs are
still rising some 6-7% a year. Premiums aren’t!
The market is at a precarious point, with a variety of forces pushing it one way while also pulling it the other. On the
one hand you have poor investment returns and the forecast of poor returns going forward putting more pressure on
underwriting profits. This helps to keep prices up. But you also have other firms in the market producing good
results and many of these firms will try and grow their market share. This pushes prices down.
Marketing spend in the market is at an all-time high, which is a reflection of appetite for business. However, this
spend has been ‘stuck’ on this high for some months now and, if history repeats itself, it will begin to recede
sometime in late 2003 or early 2004.
The increased market share of direct response firms over time has, I believe, two effects on the market. First, it
makes it more likely that the ad spend in the market will be higher than in the past, because that’s the way these firms
acquire business. Second, these firms have the ability to react more quickly to changes in market prices. Picture if
you will the market like someone in a pitch black tunnel trying to guide himself down the centre by bouncing from
one wall to the next. This is the market bouncing from raising prices to lowering prices. The effect of a larger,
faster-moving direct response sector is to bring the sides of the tunnel closer together.
Interestingly, the current range of results between firms appears to be quite wide (some firms on one side of the
tunnel, some on the other!). Some firms, like Admiral, have combined ratios below 90%, while others are still
struggling to break even and have combined ratios above 100%. The speed and depth of the cycle will be
determined by how much price-cutting the successful firms initiate and how long the less efficient firms can hold out.
In the past we have predicted that this will be a more shallow market cycle, due to the factors above. At this writing
there is no evidence that this will not be the case.
4
Admiral Group Limited
Directors’ report and financial statements
31 December 2002
Chief Executive’s statement (continued)
In short, this means that the underwriting returns will be less robust over the coming years. However, I believe AGL
is well positioned to continue to outperform the market due to our better-than-market loss ratio, low expense ratio
and the scale of our additional income.
A Brief Explanation of Why Our Results Are So Good!
Some explanation of our excellent numbers lies with our ability to make the internet work. This is also a source of
confidence in our future. Our 2002 internet results exceeded our forecasts and, in the absolute, are quite stunning.
Of the more than 4m quotes we did last year 59% were done on the internet. 41% of all our sales came from these
internet quotes. I believe that there is still a huge amount of growth in internet distribution. Studies show that more
than 60% of the market have yet even to research car insurance on the internet. As a leader in the internet delivery of
car insurance we are well placed for continued success through this channel in the coming years.
Internet Quotes
3,000
2,500
2,000
K
1,500
1,000
500
0
1998
1999
2000
2001
2002
Elephant
Other Direct brands
Elephant.co.uk was the biggest beneficiary in the continued growth in internet use. Elephant quote volumes jumped
from 1.2m in 2001 to 1.7m in 2002. Elephant’s end-of-year customer count reached 122,000. In addition, Elephant
had the best claims ratio of all our brands for the 2002 year of account. However, Elephant was not the only internet
winner in the group. In particular, Diamond transacted a much greater proportion of its business over the net than a
year ago (36%, up from 14% in 2001).
5
Admiral Group Limited
Directors’ report and financial statements
31 December 2002
Chief Executive’s statement (continued)
Customers by Brand 31/12
0
0
0
'
s
r
e
m
o
t
s
u
C
800
700
600
500
400
300
200
100
0
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
Admiral
Diamond
Bell
Elephant
Gladiator
Diamond’s real accomplishment came in September, when, after 62 months of trading, it became the top selling
brand, finally selling more new policies in a month than Admiral brand. However, two months later, Elephant (after
just 26 months in business!) took over the Number 1 spot, which it held through the end of the year.
Bell Direct also made news during the year, by winning the ‘Best UK Customer Service Contact Centre Award (up
to 100 seats)’ at the National Call Centre Awards in London. Although Bell is the smallest of the direct brands, its
spirit and enthusiasm for quality and innovation serves to validate our strategy of keeping working groups small.
Beyond Direct Response Car Insurance:
It was also another good year for Gladiator Commercial. Gladiator sells van insurance, largely to private tradesmen,
as an intermediary. Admiral Group does not take any underwriting risk with this business. At the end of 2002
Gladiator’s customer count stood at 26,368 and it contributed pre-tax £1,100,000 to the Group’s bottom line.
Including Gladiator, the Group’s customer count surpassed 700,000.
2002 also saw the launch of Confused.com, redeveloped using the Inspop platform. Confused.com has been reborn
to be an intelligent, automated car insurance shopper. Simply put, all a customer has to do is put his or her details
into Confused.com and Confused then goes out to all the major car insurance websites, populates the appropriate
fields, and brings the customer back a list of prices. One-stop shopping! We will watch the development of this
innovative website closely during 2003.
Financial Management:
On top of outstanding business results there was also a lot of successful financial management activity during the
year.
The first achievement was refinancing the debt we acquired with the MBO in 1999. We repaid this debt, some
£75m, with some of our cash and new loans from two banks, Lloyds TSB and Bank of Scotland, both of which have
been excellent to deal with. We are now comfortably holding less debt than we had before, with a longer period in
which to pay it down and a bigger business from which to pay it!
6
Admiral Group Limited
Directors’ report and financial statements
31 December 2002
Chief Executive’s statement (continued)
Financial Management (continued):
The second financial transaction of the year was bringing Munich Re in as a shareholder. Munich Re now owns
18.6% of the Group, having bought shares from Barclays Private Equity and Ridgewood (XL Capital) as well as
subscribing for a slice of new shares. It was a complicated transaction and we were all pleased to complete on
December 24! Jingle Bells will never sound the same! We are very pleased to have Munich Re as an equity partner
and will do everything in our power to ensure that they look back on this investment as one of the best they’ve ever
made.
Barclays Private Equity is still the Group’s largest shareholder, with 42.2% of the equity while management and staff
own 32.3% in the revised structure. The balance, 6.9%, is held by Ridgewood (XL Capital).
Regulation:
Lastly we come to our changes going forward with regards to regulation. Our first 10 years saw us underwriting at
Lloyd’s of London. However, the Lloyd’s concept of mutuality manifests itself through central fund charges on all
Lloyd’s members. As a motor insurer we are very unlikely to ever need to draw on the central fund, which makes the
concept of mutuality work against us. The charges have grown over time to the point which makes staying in
Lloyd’s uneconomical. We decided early in the year that a structured exit from Lloyd’s was in Admiral’s best
interest. Late in the year we received permission to begin trading from an insurance company we set up in Gibraltar
(Admiral Insurance Gibraltar Ltd., AIGL). So, from January 1, 2003 we are no longer trading forward in Lloyd’s,
simply running off the back years.
Thank you and you and you and you and …
All in all it was a most satisfying year. I’d like to thank all the staff who worked so well during the year, but I’d like
to pay a particular compliment for a job well done to the 14 senior managers who, in short, run the Company. These
senior managers have worked for Admiral for a combined 125 years, an average of almost 9 years per person (not
bad for a company that’s only 10 years old!). From the outside looking in I suspect it appears that they run the
Company in an effortless fashion. But I know better! I know that every day there are new challenges in running a
business. These managers tackle the challenges head on. Only businesses with the right people running them are
able to succeed year in, year out. Many thanks.
Henry Engelhardt
Chief Executive
7
Chief Executive’s statement (continued)
Admiral Group Limited
Directors’ report and financial statements
31 December 2002
Asterisks:
* Turnover
** Profit
Gross written premium
Other income
Technical account investment income
2002
£’000
333,000
40,123
5,338
2001
£’000
284,415
35,432
3,147
378,461
322,994
Page 15 & note 3
Page 16 & note 7
Page 15
Operating profit
Add interest receivable
Add back amortisation
*** Adjusted expense ratio
Page 16
Page 16 & note 7
Page 16 & note 9
Page 16 & note 25
2002
£’000
46,574
1,229
4,285
3,103
2001
£’000
31,266
1,065
4,358
1,500
55,191
38,189
2002
£’000
2001
£’000
Earned premium
81,336
84,135
Page 15
Net technical expenses
Add non-recurring commission
Less non recurring Lloyd’s costs
7,729
6,915
(2,117)
12,927
4,777
(2,372)
Page 15 & note 5
Page 15 & note 5
Page 15 & note 5
Adjusted expense ratio
15.4%
18.2%
12,527
15,332
8
Admiral Group Limited
Directors’ report and financial statements
31 December 2002
Directors’ report
The directors present their annual report and the audited financial statements for the year ended 31 December 2002.
Principal activity, business review and future developments
The Group’s principal activity continues to be the selling and administration of private motor insurance and related
products.
Prior to the 2000 year, the Group placed all its underwriting business with Syndicates at Lloyd’s managed by the XL
Group. It continues to run off claims for the Syndicates under a run off agreement entered into at the time of the
management buyout during 1999. For the 2000, 2001 and 2002 years, the Group placed its net share of the
underwriting business with its own Lloyd’s Syndicate – number 2004, the remainder being placed with major
European reinsurers. Syndicate 2004 is supported by a Lloyd’s Corporate Capital Vehicle, Admiral Syndicate
Limited, which is a wholly owned subsidiary of Admiral Group Limited.
Lloyd’s has been an expensive place to underwrite personal lines business, and, in common with a number of other
Lloyd’s vehicles, the Group has sought to set up underwriting vehicles outside of Lloyd’s.
In November 2002, the Group was granted a license by the Financial Services Commission in Gibraltar for a new
insurance company to be registered in Gibraltar, Admiral Insurance (Gibraltar) Limited (“AIGL”). This company
will underwrite the Group net retained share of the direct motor insurance business from 1 January 2003. Syndicate
2004 will go into run off from 31 December 2002, ceasing to accept new business. Again, the Group will continue to
run off the claims for Syndicate 2004.
Furthermore, during the year, the Group also completed the refinancing of a substantial amount of indebtedness that
existed at the prior year-end. This refinancing involved repayment of all outstanding loan note balances (along with
the additional consideration which was due in 2003), with a new commercial loan facility, repayable over the next
six years. Further details of this refinancing are set out in note 18.
More detailed analysis of the group’s activities, along with a review of the performance of the business are provided
in the Chief Executive’s statement on pages 2 to 8.
Group results and dividends
The profit for the year, after tax, amounted to £30.9m (2001: £18.3m). No dividend is proposed (2001: £nil).
Directors’ interests
The present directors of the Company are shown on page 1.
The following directors were beneficially interested in the ordinary shares of the Company:
H Engelhardt
H Engelhardt
D Stevens
D Stevens
A Probert
A Probert
O Clarke
A Lyons
Class of share
B
C
B
C
B
C
A
C
31 December
2002
Number
33,201
2,930
16,600
2,600
4,150
850
723
872
31 December
2001
Number
33,201
2,930
16,600
2,600
4,150
850
723
-
9
Admiral Group Limited
Directors’ report and financial statements
31 December 2002
Directors’ report (continued)
Directors’ interests (continued)
The 33,201 B Ordinary Shares relating to H Engelhardt are held in a Trust established in the name of Diane
Marguerite Noel Briere De L’Isle-Engelhardt, his spouse.
Charitable and political donations
During the year the Group donated £50,737 (2001: £17,050) to various local and national charities. The Group has
never made political donations.
Employee policies
In considering applications for employment from disabled people, the Group seeks to ensure that fair consideration
is given to the abilities and aptitudes of the applicant, while having regard to the requirements of the job for which he
or she has applied. Employees who become unable to carry out the job for which they are employed are given
individual consideration, and depending on the nature, severity and duration of the disability, may be considered for
alternative work and the Group continues to train and encourage the career development of disabled persons in its
employment.
The Group provides employees with regular information on its performance, other information that concerns them,
and provides a forum for employee representatives to give their views. As described in note 25, the Group operates
an Employee Share Trust for the benefit of employees The charge to the 2002 profit and loss account in respect of
this was £3,103,000 (2001: £1,500,000). Further, the Group has also established a non-contractual profit share
scheme for staff, in which bonus payments are made according to Group profitability and numerous quality
measures. The current year charge for the scheme is £555,000 (2001: £210,000)
Every member of staff is invited to attend an annual staff general meeting to achieve a common awareness
throughout the Company of the financial and economic factors that affect the performance of the group.
Auditors
The auditors, KPMG Audit Plc, have indicated their willingness to continue in office and resolutions to reappoint
them and to authorise the directors to fix their remuneration will be proposed at the annual general meeting.
By order of the board,
Stuart Clarke
S Clarke
Company Secretary
Capital Tower
Greyfriars Road
Cardiff
CF10 3AZ
4 April 2003
10
Admiral Group Limited
Directors’ report and financial statements
31 December 2002
Corporate Governance Report
The following report summarises the key elements of the Group’s corporate governance practices. As the Group is
not listed, it does not have to disclose compliance with formal rules on corporate governance (as set out in the
Combined Code), however, the directors consider it useful to set out how the Group manages risk, and how the
management of the Group’s operations is carried on.
The Board of Directors
The Board of directors of Admiral Group Limited (“AGL”) is structured to ensure an appropriate balance of
executive and non-executive directors, and to represent all groups of shareholders. Currently it comprises a non-
executive Chairman, non-executive representatives of the corporate shareholders, one further non-executive director
and three executive directors. The names of all directors appear on page 1 of this report.
The Group has separated the roles of Chairman and Chief Executive, and each has separate, clearly defined
responsibilities. The three executive directors have substantial experience in the Group’s operations, and all have
been with the Group since it commenced trading in January 1993.
In addition, two of the Group’s subsidiary companies – Admiral Syndicate Management Limited and Admiral
Insurance (Gibraltar) Limited have separate non-executive directors on their boards, over and above those referred to
above.
The Board has overall responsibility for controlling the Group, making decisions relating to the Group’s strategic
direction, and measuring progress towards these. It is ultimately responsible to shareholders for financial and
operational performance.
The Board meets at least six times a year and more if specific circumstances require it. It is provided with
comprehensive reports before each meeting, covering both financial and operational aspects of the Group’s
activities.
Operational Committees
In order to ensure it has effective control over the Group’s activities, the Group has established a number of
committees, each with responsibility for a certain aspect of Group’s operations. A summary of the activities and
responsibilities of the key committees is set out below.
The key committees are as follows:
Committee
Responsibility
Audit Committee
To monitor the adequacy of the control environment within the Group, including
approving the work programme for Internal Audit. Also, to approve the Group
financial statements and review any reports on internal controls from the auditors.
Finally, to ensure compliance with all aspects of regulation to which the Group is
subject. The Committee is chaired by a non-executive director. . The Group’s
auditors attend at least one meeting annually.
Remuneration
Committee
To consider and approve the remuneration of directors and the Company’s structure
of bonuses and share scheme incentivisation. The Remuneration Committee’s
membership consists of two non-executive directors and the Chief Executive.
11
Admiral Group Limited
Directors’ report and financial statements
31 December 2002
Corporate Governance Report (continued)
Additional Committees
In addition to the high level committees above, there are a number of additional committees that are responsible for
ensuring the efficient day to day operation of the Group and the implementation of the board’s strategies and
objectives. These include a Reinsurance Committee and Investment Committee. The Senior Managers of the Group
meet monthly, as do the individual departmental managers. The individual brand managers also meet monthly with
the Chief Executive to discuss business performance and issues.
Internal Control, Risk Management & Internal Audit
The ultimate responsibility for the Group’s system of internal control and risk management lies with the board of
directors. Whilst they have not delegated the responsibility for these matters, they have delegated the main
supervision of them to the Audit Committee as detailed above.
The Audit Committee is responsible for agreeing in advance the work that Internal Audit carries out. Internal Audit
plays a key role in identifying control weaknesses, and considering the level of all types of business risk to which the
Group is exposed. The Audit Committee is also responsible for the establishment of systems and controls to prevent
and detect fraud.
The Audit Committee recommends the approval of the Group financial statements to the main board of directors.
Appropriate financial and accounting qualifications exist among the membership, and there is significant experience
of the Group’s accounting policies and practices to ensure appropriate discussion can take place and decisions made.
As a provider of financial services, the Group is subject to regulation from a number of different bodies – most
notably the Financial Services Authority, and is consequently exposed to a level of regulatory risk. In order to
mitigate this, the Group Compliance Officer takes responsibility for ensuring compliance with all appropriate
regulation. A Risk Register produced by the Group identifies key regulatory risks. The Compliance Officer provides
advice to senior management and to the relevant Committees and Boards of directors. The Compliance Officer has
direct access to the boards of directors of all regulated entities in the Group.
FSC and Other Regulation
Admiral Syndicate Management Limited has had to comply with the FSA Lloyd’s Specialist Sourcebook for some
time, and this has meant that the Group has implemented a robust system of controls, systems and procedures across
all aspects of its business.
Admiral Insurance (Gibraltar) Limited is regulated by the Financial Services Commission of Gibraltar. These FSC
rules must comply with the appropriate EU insurance legislation.
The two main non underwriting trading subsidiaries of Admiral Group Limited are also members of the General
Insurance Standards Council (“GISC”), and are both required to comply with the rules and guidance published by
the regulator.
As referred to in the section on internal control above, it is the responsibility of the Compliance Officer to ensure
that the Group is in full compliance with all guidance and regulation to which it is subject.
12
Admiral Group Limited
Directors’ report and financial statements
31 December 2002
Statement of directors’ responsibilities
Company law requires the directors to prepare financial statements for each financial year which give a true and fair
view of the state of affairs of the company and of the profit or loss for that period. In preparing those financial
statements, the directors are required to:
(cid:1) select suitable accounting policies and then apply them consistently;
(cid:1) make judgements and estimates that are reasonable and prudent;
(cid:1) state whether applicable accounting standards have been applied, subject to any material departure disclosed and
explained in the accounts and;
(cid:1) prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company
will continue in business.
The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any
time the financial position of the company and to enable them to ensure that the financial statements comply with the
Companies Act 1985. They have general responsibility for taking such steps as are reasonably open to them to
safeguard the assets of the company and to prevent and detect fraud and other irregularities.
13
Admiral Group Limited
Directors’ report and financial statements
31 December 2002
kpmg
KPMG Audit Plc
Marlborough House
Fitzalan Court
Fitzalan Road
Cardiff CF24 0TE
United Kingdom
Independent auditors’ report to the members of Admiral Group Limited
We have audited the financial statements on pages 15 to 37.
This report is made solely to the company’s members, as a body, in accordance with section 235 of the Companies
Act 1985. Our audit work has been undertaken so that we might state to the company’s members those matters we
are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the company and the company’s members as a body,
for our audit work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditors
The directors are responsible for preparing the directors’ report and, as described on page 13, the financial
statements in accordance with applicable United Kingdom law and accounting standards. Our responsibilities, as
independent auditors, are established in the United Kingdom by statute, the Auditing Practices Board and by our
profession’s ethical guidance.
We report to you our opinion as to whether the financial statements give a true and fair view and are properly
prepared in accordance with the Companies Act 1985. We also report to you if, in our opinion, the directors’ report
is not consistent with the financial statements, if the company has not kept proper accounting records, if we have not
received all the information and explanations we require for our audit, or if information specified by law regarding
directors’ remuneration and transactions with the company is not disclosed.
We read the other information accompanying the financial statements and consider whether it is consistent with those
statements. We consider the implications for our report if we become aware of any apparent misstatements or
material inconsistencies with the financial statements.
Basis of audit opinion
We conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board. An audit
includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements.
It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of
the financial statements, and of whether the accounting policies are appropriate to the company’s circumstances,
consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and explanations which we considered
necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion
we also evaluated the overall adequacy of the presentation of information in the financial statements.
Opinion
In our opinion the financial statements give a true and fair view of the state of affairs of the company and the group
as at 31 December 2002 and of the profit of the group for the year then ended and have been properly prepared in
accordance with the Companies Act 1985.
KPMG Audit Plc
Chartered Accountants
Registered Auditor
14 April 2003
14
Admiral Group Limited
Directors’ report and financial statements
31 December 2002
Consolidated profit and loss account: technical account – general business
for the year ended 31 December 2002
Note
2002
£000
£000
£000
£000
2001
Total premiums written
Gross premiums written
Outward reinsurance premiums
Change in the gross provision for unearned
premiums
Change in the provision for unearned premiums,
reinsurers’ share
Earned premiums, net of reinsurance
Allocated investment return transferred from the
non-technical account
Interest receivable
Total technical income
Claims incurred, net of reinsurance:
Claims paid:
Gross amount
Reinsurers’ share
Change in the provision for claims:
Gross amount
Reinsurers’ share
Claims incurred, net of reinsurance
Balance in general business technical account
before net operating expenses
Net operating expenses
Balance on the general business technical account
3
3
7
4
333,000
284,415
198,950
(102,067)
65,427
96,883
(12,748)
84,135
3,147
908
88,190
15,909
81,336
5,338
807
87,481
(25,497)
12,749
(60,724)
28,198
(32,526)
(66,491)
35,084
(31,407)
(52,566)
(63,933)
69,089
(3,662)
62,464
(46,555)
(68,083)
31,059
(37,024)
(9,092)
(6,450)
(15,542)
34,915
(7,729)
27,186
24,257
(12,927)
11,330
15
Admiral Group Limited
Directors’ report and financial statements
31 December 2002
Consolidated profit and loss account: non-technical account
for the year ended 31 December 2002
Balance on the general business technical account
Investment income
Net unrealised losses on investments
Investment expenses and charges
Other income
Other charges:
Amortisation of goodwill
Employee Share Trust
Staff profit share expense
Other
Allocated investment return transferred to the technical
account
Operating profit
Interest receivable
Interest payable
Profit on ordinary activities before tax
Tax on profit on ordinary activities
Profit for the financial year after tax
Dividends proposed
Retained profit for the financial year transferred to
reserves
Note
2002
£000
£000
27,186
2001
£000
£000
11,330
6,515
(1,042)
(135)
40,123
(4,285)
(3,103)
(555)
(12,792)
(20,735)
(5,338)
4,334
(1,076)
(112)
35,432
(4,358)
(1,500)
(210)
(9,427)
(15,495)
(3,147)
19,388
46,574
1,229
(4,852)
42,951
(12,014)
30,937
-
30,937
19,936
31,266
1,065
(4,896)
27,435
(9,099)
18,336
-
18,336
7
25
6
7
7
5
8
21
There were no material acquisitions in the financial year, and no operations were discontinued. All income and
expenditure therefore relates to continuing operations.
There are no recognised gains and losses in either year other than those reported above in the profit and loss account.
16
Consolidated balance sheet
at 31 December 2002
Assets
Intangible fixed assets
Investments
Other financial investments
Reinsurers’ share of technical provisions
Provision for unearned premiums
Claims outstanding
Debtors
Debtors arising out of direct insurance operations
Debtors arising out of reinsurance operations
Other debtors
Other assets
Cash at bank and in hand
Tangible fixed assets
Prepayments and accrued income
Deferred acquisition costs
Other prepayments and accrued income
Total assets
Admiral Group Limited
Directors’ report and financial statements
31 December 2002
Note
2002
2001
£000
£000
£000
£000
9
12
19
19
14
13
66,260
110,877
71,945
93,912
-
53,407
68,985
-
4,743
62,996
6,681
1,655
1,788
46,555
59,857
53,407
106,412
71,150
4,931
6,191
73,728
82,272
33,218
7,261
69,677
40,479
5,632
4,860
3,443
377,392
10,492
405,512
17
Admiral Group Limited
Directors’ report and financial statements
31 December 2002
Consolidated balance sheet (continued)
at 31 December 2002
Liabilities
Capital and reserves
Called up share capital
Share premium account
Profit and loss account
Shareholders’ funds attributable to equity interests
Technical provisions
Provision for unearned premiums
Claims outstanding
Creditors – amounts due, falling within one year
Creditors arising out of reinsurance operations
Loan notes & other loans
Other creditors including taxation and social
security
Accruals and deferred income
Creditors – amounts due, falling after one year
Loan notes & other loans
Other creditors
Other accruals and deferred income
Provisions for liabilities and charges
Note
2002
2001
£000
£000
£000
£000
25
15,746
53,182
30,645
124,478
52,238
2,839
15,760
25,998
45,000
2,343
5,718
20
21
21
19
19
18
15
16
18
15
16
17
23
-
22,245
68,953
22,268
93,109
115,386
155,123
208,495
37,571
16,670
23,271
28,779
96,835
106,291
45,697
2,789
19,972
53,061
3,420
68,458
-
Total liabilities
377,392
405,512
These financial statements were approved by the board of directors on 4 April 2003 and were signed on its behalf
by:
Andrew Probert
A Probert
Director
18
Admiral Group Limited
Directors’ report and financial statements
31 December 2002
2002
2001
£000
£000
£000
£000
92,302
80,702
Parent company balance sheet
at 31 December 2002
Fixed assets
Investments
Current assets
Debtors (amounts owed by subsidiaries)
Cash at bank and in hand
Creditors: amount due, falling within one year:
Loan notes & other loans
Other creditors
Accruals and deferred income
Note
10
18
15
16
Net current assets
Total assets less current liabilities
Creditors: amounts due, falling after more than
one year:
Loan notes & other loans
Accruals and deferred income
23,075
6,931
30,006
(2,839)
(459)
(240)
(3,538)
22,039
17,263
39,302
(16,670)
(3,586)
(139)
(20,395)
26,468
118,770
18
16
(45,000)
-
(45,697)
(17,100)
Net assets
Capital and reserves
Called up share capital
Share premium account
Profit and loss account
20
21
21
(45,000)
73,770
25
15,746
57,999
73,770
18,907
99,609
(62,797)
36,812
23
-
36,789
36,812
These financial statements were approved by the board of directors on 4 April 2003 and were signed on its behalf
by:
Andrew Probert
A Probert
Director
19
Admiral Group Limited
Directors’ report and financial statements
31 December 2002
2002
2001
£000
£000
£000
£000
78,292
(8,505)
(10,079)
(2,808)
180
(5,015)
4
Group cash flow statement
for the year ended 31 December 2002
Net cash inflow from operating activities
Note
24
Servicing of finance
Net interest paid
Taxation
Corporation tax paid
Capital expenditure
Purchases of fixed assets
Sales of fixed assets
Net purchases of fixed assets
Acquisitions
Equity dividends paid
Financing
Issues of ordinary shares
Drawdown of new loans
Repayment of loan notes and other loans
Net movement in finance lease capital
Deferred consideration
15,748
60,000
(68,757)
(586)
(15,700)
Cash flows were invested as follows:
Increase in cash holdings
Decrease in restricted cash holdings
Debt securities and other fixed income securities
Net investment of cash flows
-
-
(22,451)
3,088
-
(2,628)
-
-
(9,295)
47,785
29,778
-
18,007
47,785
88,211
(1,610)
(8,237)
(5,011)
(125)
-
(19,363)
53,865
16,961
(12,099)
49,003
53,865
20
Admiral Group Limited
Directors’ report and financial statements
31 December 2002
Notes
(forming part of the financial statements)
1
Basis of preparation
The group financial statements, which consolidate the financial statements of the Company and its wholly owned
subsidiary undertakings, have been prepared in accordance with the provisions of Section 255 of, and Schedule 9A
to, the Companies Act 1985. The balance sheet of the parent Company is prepared in accordance with the provisions
of Section 226 of, and Schedule 4 to, the Companies Act 1985. The financial statements have also been prepared in
accordance with applicable accounting standards and under the historical cost accounting rules, and comply with the
Statement of Recommended Practice issued by the Association of British Insurers.
The Group has adopted FRS 19 (Deferred Tax) in these financial statements. Deferred taxation, which requires full
provision to be made for deferred tax assets and liabilities arising from timing differences between the recognition of
gains and losses in the financial statements and their recognition for tax purposes. Previously, deferred tax was
provided for using the tax rates estimated to arise when the timing differences reversed and was accounted for to the
extent that it was probable that a liability or asset would crystallise. Under FRS 19 deferred tax is provided using the
average tax rates that are expected to apply in the periods in which the timing differences are expected to reverse.
The directors do not consider that the impact of adopting the standard on the brought forward profit and loss reserve
was material, and hence no prior period adjustment was made in the Group and Consolidated accounts.
The results of all directly and indirectly owned subsidiary undertakings are included in the consolidated accounts.
One of the Companies that was incorporated during the year – Admiral Insurance (Gibraltar) Limited - has its first
accounting reference date at 31 December 2003. Accounts have been draw up for the Company (and audited) as at
31 December 2002 for inclusion in these consolidated financial statements. Refer to notes 10 & 11 for further detail
on group investments.
The accounts of all group companies are made up to 31 December.
As permitted by Section 230 of the Companies Act 1985, the profit and loss account of the parent Company is not
presented.
2.
Accounting policies
The following accounting policies have been applied consistently in dealing with items which are considered
material to the group’s financial statements.
Basis of accounting for general insurance business
General business is accounted for on an annual basis.
Premiums
General business written premiums comprise the premiums on contracts entered into during the year, irrespective of
whether they relate in whole or in part to a later accounting period. Premiums are disclosed gross of commission
payable to intermediaries and exclude taxes and levies based on premiums.
For general business accounted for on the annual basis, the provision for unearned premiums comprises the
proportion of gross premiums written which is estimated to be earned in the following or subsequent financial years,
computed separately for each insurance contract using the daily pro rata method, adjusted if necessary to reflect any
variation in the incidence of risk during the period covered by the contract.
Acquisition costs
Acquisition costs comprise all direct and indirect costs arising from the conclusion of insurance contracts. Deferred
acquisition costs represent the proportion of acquisition costs incurred that corresponds to the unearned premiums
provision.
21
Admiral Group Limited
Directors’ report and financial statements
31 December 2002
Notes (continued)
2.
Accounting policies (continued)
Claims
Claims incurred in respect of general business consist of claims and claims handling expenses paid during the period
together with the movement in the provision of outstanding claims.
Claims outstanding comprise provisions for the estimated cost of settling all claims incurred but unpaid at the
balance sheet date whether reported or not, and related internal and external claims handling expenses. Anticipated
reinsurance recoveries are disclosed separately as assets.
Guarantee fund levies
Provision is made at the balance sheet date for levies declared by the Financial Services Compensation Scheme and
Motor Insurers’ Bureau before completion of the financial statements. Provision is also made if it is more likely than
not that a levy will be raised based on premium income which has already been recognised in the financial
statements.
Investments
Listed investments are stated at mid-market value on the balance sheet date, or on the last stock exchange trading day
before the balance sheet date.
Investments in subsidiary undertakings are valued at cost less any provision for impairment in value.
Investment return
Interest receivable is accounted for on an accruals basis. Dividend income, grossed up where appropriate by the
imputed tax credit, is recognised when the related investment goes “ex-dividend”.
Realised gains or losses represent the difference between net sales proceeds and purchase price or in the case of
investments valued at amortised cost, the latest carrying value.
Unrealised gains and losses on investments represent the difference between the current value of investments at the
balance sheet date and their purchase price. The movement in unrealised investment gains/losses includes an
adjustment for previously recognised unrealised gains/losses on investments disposed of in the accounting period.
Investment return (including realised and the movement in unrealised investment gains and losses) on investments
attributable to the general business and associated shareholders’ funds is reported in the technical account for general
business.
Depreciation
Depreciation is provided to write off the cost less the estimated residual value of tangible assets by equal instalments
over their estimated useful economic lives as follows:
Motor vehicles
Fixtures, fittings and equipment
Computer equipment and software
Improvement to short lease-hold properties
-
-
-
-
4 years
4 years
2 to 4 years
4 years
22
Admiral Group Limited
Directors’ report and financial statements
31 December 2002
Notes (continued)
2.
Accounting policies (continued)
Goodwill
Goodwill arising on acquisitions, being the difference between the fair value of the purchase consideration and the
fair value of net assets acquired, is capitalised in the balance sheet and amortised on a straight line basis over its
estimated useful life. The useful life of each acquisition is determined at the time of acquisition, and reviewed
annually to ensure the life assigned remains appropriate.
Foreign currencies
Assets and liabilities denominated mainly in a foreign currency are translated using the closing rate method.
Exchange differences on operating net assets are taken to reserves. Other exchange differences are dealt with in the
profit and loss account through either the non-technical or technical account.
Leases
The rental costs relating to operating leases are charged to the profit and loss account on a straight-line basis over the
life of the lease.
Assets acquired under finance leases or hire purchase contracts are included in tangible fixed assets at an amount
equal to the cost that would have been payable on purchase and are depreciated in the same manner as equivalent
owned assets. Finance lease and hire purchase obligations are included in creditors, and the finance costs are spread
over the periods of the agreements based on the net amount outstanding.
Taxation
The charge for taxation is based on the profit for the year and takes into account taxation deferred because of timing
differences between the treatment of certain items for taxation and accounting purposes. Deferred tax assets are
recognised to the extent that they are regarded as recoverable. They are regarded as recoverable to the extent that,
on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable
profits from which the future reversal of the underlying timing differences can be deducted.
3.
Analysis of underwriting results
All business written during both financial years is direct private motor insurance written in the United Kingdom.
During 2001 and 2002, the group share of business written was all underwritten by Syndicate 2004.
Year ended 31 December 2002
Motor insurance - total premiums
Coinsurer share of total premiums
Group share of total premiums
Release of excess prior year cancellation provision
Gross premium written
£000
333,000
(266,400)
66,600
2,489
69,089
23
Notes (continued)
3.
Analysis of underwriting results (continued)
Year ended 31 December 2001
Motor insurance - total premiums
Coinsurer share of total premiums
Group share of total premiums
Under provision for cancellations in previous years
Gross premium written
4.
Net operating expenses – Technical account
Gross acquisition costs incurred
Deferred acquisition costs
Expense commission receivable
Gross reinsurance commission receivable
Deferred element of gross reinsurance commission receivable
Administrative expenses
Lloyd’s charges
Admiral Group Limited
Directors’ report and financial statements
31 December 2002
£000
284,415
(85,265)
199,150
(200)
198,950
2001
£000
12,046
(5,632)
(4,777)
(31,155)
4,364
35,709
2,372
2002
£000
5,121
3,977
(6,915)
(42,698)
(4,364)
50,491
2,117
7,729
12,927
The increase in administrative expenses for the Group is due to the change in coinsurance arrangements, and is offset
by higher reinsurance commission receivable.
5.
Profit on ordinary activities before tax
Operating profit is stated after charging the following items:
Financing & refinancing costs:
Initial financing (see note below)
2002 refinancing
Costs relating to new share issues
Operating lease rentals:
Machinery and equipment
Buildings
Auditor’s remuneration:
Audit fees (including Company £6,000 (2001: £5,000))
Other services: Refinancing & new share issues
Other (including Company £13,000 (2001: £nil))
Loss on disposal of assets
2002
£000
607
1,515
50
-
1,326
111
341
60
166
2001
£000
911
-
-
-
1,326
70
-
11
2
24
Admiral Group Limited
Directors’ report and financial statements
31 December 2002
Notes (continued)
5.
Profit on ordinary activities before tax (continued)
Costs of initial financing relate to the costs of a one-off stop-loss reinsurance programme purchased in 2000 for
£2.1m that has been expensed in line with estimated premiums over the three years to 31 December 2002. £607,000
was expensed in the current year (2001: £911,000).
6.
Employees
Staff costs (including directors)
Salaries
Social security
Other pension costs
Staff profit share scheme
Employee share trust charge (see note 25)
2002
£000
22,069
1,844
250
555
3,103
2001
£000
18,549
1,673
210
210
1,500
27,821
22,142
Pension costs relate to contributions made by the Group into the Group Personal Pension Plan, a matching scheme
open to all employees except for directors and subject to a maximum annual contribution of £3,000 per employee.
Number of staff (including directors)
Direct customer contact staff
Support staff
Directors’ emoluments
Emoluments (including Company £65,000)
Emoluments of the highest paid director (including Company £nil)
No contributions were made into pension schemes on behalf of directors.
Average for the year
2002
Number
2001
Number
1,140
254
1,394
1,071
251
1,322
2002
£000
827
312
2001
£000
569
237
25
Notes (continued)
7.
Net interest and other income receivable
Bank and other interest receivable
Allocated to technical account
Allocated to non-technical account
Interest payable
Commercial loan interest payable
Loan note interest payable
Finance lease interest
Bank interest
Other interest
Other income
Revenue from related sales
Commissions from broker operations
Instalment income
Other
8.
Taxation on profit on ordinary activities
UK corporation tax
Current year at 30% (2001: 30%)
(Over) / under provision relating to prior years
Deferred taxation movement (note 17)
Admiral Group Limited
Directors’ report and financial statements
31 December 2002
2002
£000
807
1,229
2,036
820
2,838
304
-
890
4,852
2001
£000
908
1,065
1,973
-
3,595
339
3
959
4,896
34,759
3,350
1,836
178
28,392
3,522
3,518
-
40,123
35,432
2002
£000
9,123
(529)
3,420
12,014
2001
£000
8,780
319
-
9,099
26
Notes (continued)
8.
Taxation on profit on ordinary activities (continued)
Factors affecting tax charge for the period:
Profits on ordinary activities before taxation
Corporation tax thereon at 30%
Syndicate profits taxed on Lloyd’s basis
Expenses not deductible for tax purposes (primarily goodwill amortisation)
Other timing differences
Impact of using lower tax rate
Current tax charge per accounts (as above)
9.
Intangible assets - goodwill
Cost
At 1 January 2002
Addition
Valuation adjustment (see below)
At 31 December 2002
Amortisation
At 1 January 2002
Charged in the year
At 31 December 2002
Net book amount
At 31 December 2002
At 31 December 2001
Admiral Group Limited
Directors’ report and financial statements
31 December 2002
2002
£000
2001
£000
42,951
27,435
12,885
(4,997)
1,350
(104)
(11)
8,231
(813)
1,284
87
(9)
9,123
8,780
Group
£000
80,279
-
(1,400)
78,879
8,334
4,285
12,619
66,260
71,945
As at 31 December 2001, the goodwill valuation contained an amount of £17.1m relating to further consideration
payable in respect of the acquisition of Admiral Insurance Services Limited in 1999. This was settled during the year
at a discount of £1.4m, and goodwill has been revalued accordingly.
27
Notes (continued)
10.
Investments in group undertakings
Shares in group undertakings
Admiral Group Limited
Directors’ report and financial statements
31 December 2002
2002
Company
Cost
£000
2001
Company
Cost
£000
92,302
80,702
A £1.4m decrease has been included in the cost of the investment in Admiral Insurance Services Limited. This is due
to the adjustment to the calculation of the fair value of the consideration paid for the Company following the
settlement of the deferred element of the consideration during the year. Refer to note 9 for further detail.
The Company’s principal subsidiaries (all of whom are 100% owned) are as follows:
Country of
incorporation
Class of
shares held
Principal activity
Held directly
or indirectly
Admiral Insurance Services Limited
England and Wales Ordinary
Able Insurance Services Limited
Admiral Insurance (Gibraltar) Limited
Admiral Syndicate Management Limited
England and Wales Ordinary
Ordinary
Gibraltar
England and Wales Ordinary
Admiral Syndicate Limited
England and Wales Ordinary
Confused.com Limited
Inspop.com Limited
England and Wales Ordinary
England and Wales Ordinary
Service company to
Lloyd’s Syndicate
Intermediary
Insurance company
Lloyd’s managing
agency
Lloyd’s corporate
Capital vehicle
Non trading
Internet services
Directly
Directly
Directly
Directly
Directly
Indirectly
Directly
11.
Group structure
During the year, the Group incorporated a company in Gibraltar, Admiral Insurance (Gibraltar) Limited (“AIGL”)
with a share capital subscription of £13m. This company will underwrite the Group share of the motor insurance
business generated from January 2003. AIGL received a license to do so from the Financial Services Commission in
Gibraltar during November 2002.
12.
Other financial investments
Group
Historic cost at Market value at
31 December
2002
£000
31 December
2002
£000
Historic cost at
31 December
2001
£000
Market value at
31 December
2001
£000
Debt securities and other fixed
income
securities
Deposits with credit institutions
91,141
20,778
90,099
20,778
67,320
27,668
66,244
27,668
111,919
110,877
94,988
93,912
28
Admiral Group Limited
Directors’ report and financial statements
31 December 2002
Notes (continued)
13.
Tangible fixed assets
Group
Cost
At 1 January 2002
Additions
Disposals
Improvements
to short
leasehold
buildings
£000
1,566
36
-
Computer
equipment
and
software
£000
12,794
2,562
(356)
Office
equipment
Furniture
and fittings
Motor
vehicles
Total
£000
2,588
163
-
£000
1,526
40
(3)
£000
£000
3
7
-
18,477
2,808
(359)
At 31 December 2002
1,602
15,000
2,751
1,563
10
20,926
Depreciation
At 1 January 2002
Charge for the year
Disposals
973
236
-
7,881
2,110
(12)
1,309
423
-
1,051
271
-
At 31 December 2002
1,209
9,979
1,732
1,322
Net book amount
At 31 December 2002
At 31 December 2001
393
593
5,021
1,019
4,913
1,279
241
475
Net book amounts for the group include the following amounts related to leased assets:
Computer equipment and software
Office equipment
Furniture and fittings
2
1
-
3
7
1
11,216
3,041
(12)
14,245
6,681
7,261
2001
£000
2,201
52
161
2,414
2002
£000
3,438
140
64
3,642
The Company does not hold any fixed assets other than investments in subsidiaries as set out in note 10.
14.
Debtors arising out of direct insurance operations
Amounts owed by policyholders
Commissions due
Company
2002
£000
-
-
-
Group
2002
£000
68,234
751
Company
2001
£000
-
-
Group
2001
£000
70,200
950
68,985
-
71,150
29
Admiral Group Limited
Directors’ report and financial statements
31 December 2002
Notes (continued)
15.
Other creditors including taxation and social security
Amounts due, falling within one year:
Corporation tax payable
Other tax and social security
Finance leases
Other
Amounts owed to group companies
Amounts due, falling after one year:
Finance leases
16.
Accruals and deferred income
Amounts due, falling within one year:
Premiums booked relating to the following year
Claims handling expenses
Motor Insurers’ Bureau
Deferred income
Other
Amounts due, falling after one year:
Claims handling expenses
Deferred consideration (see note below)
Employee Share Trust
Deferred income
Company
2002
£000
-
-
-
459
-
Group
2002
£000
4,060
1,148
1,418
9,134
-
459
15,760
Company
2001
£000
-
-
-
-
3,586
3,586
Company
2002
£000
Group
2002
£000
Company
2001
£000
-
2,343
-
Company
2002
£000
-
-
-
-
240
240
Group
2002
£000
11,417
4,267
6,517
3,472
325
25,998
Company
2002
Group
2002
-
-
-
-
-
759
-
4,839
120
5,718
Company
2001
£000
-
-
-
-
139
139
Company
2001
£000
-
17,100
-
-
Group
2001
£000
5,543
3,323
1,559
12,846
-
23,271
Group
2001
£000
2,789
Group
2001
£000
10,850
3,438
6,351
2,747
5,393
28,779
Group
2001
£000
836
17,100
1,736
300
17,100
19,972
30
As discussed in note 10, the deferred consideration was settled during the year.
Notes (continued)
17.
Provision for deferred tax
Group
Balance at 1 January
Movement in period, being charge to profit and loss account
Balance at 31 December 2002
Admiral Group Limited
Directors’ report and financial statements
31 December 2002
2002
£000
-
3,420
3,420
2001
£000
-
-
-
At the year end, there was an unprovided deferred tax asset of £1,222,000 (2001: £2,854,000).
The net balance provided at the end of the current year is made up of a gross deferred tax liability of £3,698,000
relating to the tax treatment of Lloyd’s Syndicates, and a deferred tax asset of £278,000 in respect of capital
allowance related timing differences.
There was no deferred tax asset or liability provided in the Company accounts. There was an unprovided asset of
£176,000 (2001: £353,000) relating to carried forward losses at the year end.
18.
Loans
During the year, the Company undertook a significant refinancing exercise, which resulted in the repayment of all
loan notes that were previously in existence. In place of these liabilities, on 1 October 2002 the Company entered
into a £50m facility with Lloyds TSB and Bank of Scotland.
The facility consists of a £40m term loan, along with a £10m revolving credit facility. The term loan is to be repaid
according to a set repayment schedule over six years from October 2002.
Interest is charged on amounts drawn down under the facility based on three elements:
a) LIBOR
b) A margin – as set out in the facility agreement, varying between 1.25% and 2.25%
c) A “mandatory costs” contribution – currently around 0.01%
Accrued interest is paid off at the end of interest periods selected by the Company. It is envisaged that these periods
will be of three month duration on an ongoing basis.
Security granted in respect of the facility is in the form of fixed and floating charges over most Group assets
(excluding assets subject to regulatory restriction) and charges over the shares in some subsidiary companies.
Amounts outstanding (including accrued interest) at 31 December were as follows:
Repayable:
Within one year
Two to five years
Greater than five years
2002
£000
2,839
28,000
17,000
47,839
2001
£000
16,670
45,697
-
62,367
31
Notes (continued)
19.
Technical provisions & estimation techniques
2002
Claims outstanding
Unearned premiums
At end of year
2001
Claims outstanding
Unearned premiums
At end of year
Admiral Group Limited
Directors’ report and financial statements
31 December 2002
Gross
£000
Reinsurance
£000
124,478
30,645
53,407
-
Net
£000
71,071
30,645
155,123
53,407
101,716
Gross
£000
Reinsurance
£000
115,386
93,109
59,857
46,555
Net
£000
55,529
46,554
208,495
106,412
102,083
Analysis of claims reserves movements:
2002
Claims reserve brought forward
Provision movement – current accident year
Releases of prior year provisions – 2000 accident year
2001 accident year
Gross
£000
Reinsurance
£000
115,386
26,448
(6,844)
(10,512)
59,857
2,228
(3,422)
(5,256)
Net
£000
55,529
24,220
(3,422)
(5,256)
Claims reserve carried forward
124,478
53,407
71,071
2001
Claims reserve brought forward
Provision movement – current accident year
Releases of prior year provisions – 2000 accident year
Gross
£000
Reinsurance
£000
48,895
74,337
(7,846)
24,447
39,333
(3,923)
Net
£000
24,448
35,004
(3,923)
Claims reserve carried forward
115,386
59,857
55,529
32
Admiral Group Limited
Directors’ report and financial statements
31 December 2002
Notes (continued)
19.
Technical provisions & estimation techniques (continued)
Estimation Techniques
Estimation is necessary to:
a) predict the final claims costs arising from policies already written, and
b) determine the price to be quoted for new business so as to maximise future returns
Accurate estimation of final claims costs requires forecasts of claims which have not yet occurred, and also the likely
final outcome of those which have been reported, but are not yet settled
Analyses of claims by development month is key in forecasting claims not yet arisen, ie by comparing the frequency
of claims observed for the current underwriting year with that for previous underwriting years at the same
development month. These contribute to actuarial projections of the final outcome, which take account also of
external market conditions
The best early estimates of final claim size are obtained by the accurate setting of claim reserves by claims staff.
These reserves are based upon previous final outcomes of claims of similar type, and also, especially for injury
claims, upon a knowledge of current judicial decisions.
Historic claim triangles – where monthly changes observed in claim costs for claims reported some months
previously are assumed to apply to claims currently being reported – are also used to estimate final claim costs and
loss ratios, although the main emphasis is on the accurate setting of reserves noted above.
To maximise future returns it is most important to set an appropriate price, which tends to attract profitable and
discourage loss making business. For this, there are in place statistical pricing models, which analyse the historic
claims costs arising from segments of the business, and adjust the prices where costs have been out of line with the
premiums. Multivariate techniques are used which take account of all the rating factors together, which determine
the correct risk for each business segment, if necessary by individual claim type.
The claims provisions are subject to annual independent review by external actuaries.
20.
Called up share capital
Authorised
5,970,000 / 6,000,000 A ordinary shares of 10p each
2,000,000 B ordinary shares of 10p each
2,000,000 C ordinary shares of 10p each
29,836 D ordinary shares of 10p each
20,164 E ordinary shares of 10p each
2002
£000
597
200
200
3
2
2001
£000
600
200
200
-
-
1,002
1,000
33
Notes (continued)
20.
Called up share capital (continued)
Issued, called up and fully paid
132,488 / 162,324 A ordinary shares of 10p each
60,176 B ordinary shares of 10p each
12,042 / 11,170 C ordinary shares of 10p each
29,836 D ordinary shares of 10p each
20,164 E ordinary shares of 10p each
Admiral Group Limited
Directors’ report and financial statements
31 December 2002
2002
£000
13
6
1
3
2
25
2001
£000
16
6
1
-
-
23
During the year, the Group allocated 872 fully paid up C ordinary shares of 10p each, and 20,164 fully paid up E
ordinary shares of 10p each. Total consideration in respect of these issues was £15,747,920.
Further, 29,836 issued A ordinary shares were converted into the same number of new D ordinary shares.
Rights of shares
In the event of a winding up of the Company or other return of capital, the assets of the Company available for
distribution to shareholders will be distributed amongst the holders of the ordinary shares pari passu, as if they were
all shares of the same class. This is provided that, after the distribution of the first £500m of such balance, the
Deferred Shares (as defined in the Company'’ Articles of Association) (if any) shall be entitled to receive an amount
equal to the nominal value of such Deferred Shares. Any payment made to the holders of shares of a particular class
shall be made in proportion to the numbers of shares of the relevant class held by each of them.
Immediately prior to a Sale or Listing (a “Conversion Date”), 61,552 A ordinary shares, 13,861 D ordinary shares
and 9,368 E ordinary shares shall convert into the same number of fully paid Deferred Shares (“The Conversion”)
which have limited rights.
21.
Movements on shareholders funds
Group
At 1 January 2002
Issue of share capital
Retained profit for the financial year
At 31 December 2002
Share Capital
£’000
23
2
-
25
Share
Premium
£’000
Profit and
loss account
£’000
-
15,746
-
22,245
-
30,937
Total
£’000
22,268
15,748
30,937
15,746
53,182
68,953
34
Admiral Group Limited
Directors’ report and financial statements
31 December 2002
Share Capital
£’000
23
2
-
25
Share
Premium
£’000
Profit and
loss account
£’000
-
15,746
-
36,789
-
21,210
Total
£’000
36,812
15,748
21,210
15,746
57,999
73,770
Notes (continued)
21.
Movements on shareholders funds (continued)
Company
At 1 January 2002
Issue of share capital
Retained profit for the financial year
At 31 December 2002
22.
Commitments
Annual commitments of the group under non-cancellable operating leases are as follows:
Operating leases which expire:
Within one year
In the second to fifth years inclusive
Over five years
2002
2001
Land and
buildings
£’000
Other
£’000
Land and
buildings
£’000
Other
£’000
-
1,506
-
1,506
-
-
-
-
-
1,506
-
1,506
-
-
-
-
At the year-end, the Group had contracted to spend around £335,000 on fixed assets over 2003 and 2004 (2001:
£500,000 over three years). The Company itself does not hold tangible fixed assets, and was not committed to any
expenditure after 31 December 2002.
23.
Contingent liabilities
The Group had no contingent liabilities at the year-end, other than those arising out of insurance contracts, and other
agreements entered into in the normal course of business.
35
Notes (continued)
24.
Cash flow statement
Reconciliation of operating profit to net cash inflow from operating activities
Operating profit
Add back:
Depreciation charge
Amortisation charge
Unrealised losses on investments
Loss on disposal of tangible fixed assets
Change in gross technical provisions
Change in reinsurers’ share of technical provisions
Change in debtors and prepayments
Change in creditors excluding tax and social security
Change in tax and social security creditor
Admiral Group Limited
Directors’ report and financial statements
31 December 2002
2002
£000
2001
£000
46,574
31,266
3,041
4,285
1,042
166
(53,372)
53,005
15,593
10,133
(2,175)
2,409
4,358
1,076
2
91,988
(48,159)
(6,072)
16,931
(5,588)
Net cash inflow from operating activities
78,292
88,211
25.
Employee Share Trust
During 2000 the Group established an Employee Share Trust, under which 14,706 C ordinary shares are to be made
available to a trust in which the Group’s employees are allocated units. These shares will be issued to Group
employees on the earlier of a sale or flotation of the Company’s shares. Awards for participation in the scheme are
made annually by the trustees of the Group’s Employee Share Trust.
The Group is making provision for the costs of making the shares available under the terms of the trust, and is
spreading the cost of doing this over the period leading up to the date at which the directors estimate the awards will
be made. Details of the charge for the current and preceding years are shown in note 6.
26.
Related Party Transactions
The following related party transaction took place during the year:
Settlement of outstanding loan notes:
As discussed in note 18, during 2002 the Company settled the loan notes which had been outstanding, and replaced
these with a new commercial loan facility.
Three of the Company’s directors were loan note holders, along with one of the director’s spouse. In addition, a
number of the Group’s major shareholders also received final settlements in respect of their indebtedness. The final
repayments made to each are set out below:
36
Admiral Group Limited
Directors’ report and financial statements
31 December 2002
Notes (continued)
26.
Related Party Transactions (continued)
Barclays Industrial Development Limited
Barclays Private Equity PVLP Limited Partnership
Brockbank Underwriting Limited
Brockbank Syndicate Management Limited
H A Engelhardt
D G Stevens **
A C Probert
Others, including Admiral staff
Loan
capital
£000
9,993
9,993
3,270
18,532
4,709
2,354
589
1,533
Accrued
interest *
£000
Total
payment
£000
1,756
1,756
575
2,608
662
331
83
174
11,749
11,749
3,845
21,140
5,371
2,685
672
1,707
*
**
Net of income tax deduction where payment is to an individual
Includes repayments made to Mr Stevens’ spouse
The rate of interest accruing on the above loan notes was 6%. There are no further amounts due either to, or from,
any directors, or to or from any of the Barclays entities at the end of 2002.
Furthermore, the deferred consideration which was payable as part of the Management Buyout deal was also settled
as part of the same transaction. £15.7m was paid to Brockbank entities named above. No further amounts are due
relating to the MBO.
37